With its reputation battered by public allegations that it misled a client with regard to a complex derivatives deal that resulted in massive losses, the bank's top executive decides to retire early and is ultimately replaced by a former high-ranking Treasury Department official. That was Bankers Trust in 1995. Is it a model for the way forward at Goldman Sachs (NYSE: GS ) in 2010?
Buffett's a fan
Not if you ask Warren Buffett, who offered unqualified support for Goldman CEO Lloyd Blankfein at Berkshire Hathaway's (NYSE: BRK-A ) (BRK-B) Annual Meeting in May. Asked to name a hypothetical replacement for Blankfein, Buffett replied: "If Lloyd had a twin brother, I would vote for him. I have never given that a thought." (Berkshire owns $5 billion of Goldman preferred shares, along with warrants to purchase common shares.)
Goldman: Inside and outside
This week, however, outspoken banking industry analyst Dick Bove called for management changes at Goldman and said that CEO Lloyd Blankfein "probably has to go, not because he doesn't know how to run Goldman Sachs, but because of the fact he has difficulty handling the world outside Goldman Sachs."
I think Bove hits the nail on the head here. Blankfein is very probably an excellent manager; Goldman was better prepared than its peers going into the crisis, and financially, it has capitalized to the full extent (excessively, some would argue) on the upheaval in the industry since then.
Capital: Financial and reputational
However, the firm hasn't displayed the same agility with respect to managing its reputational capital: Management has been glacially slow in recognizing and adapting to the changes in the political and regulatory climate. The firm continues to commit faux-pas in this realm -- this week, a government commission investigating the financial crisis accused it of stalling with regard to requests for data, before submitting roughly 2.5 billion pages worth of information (the classic "avalanche" tactic used in the legal discovery process).
Leadership: Manager or statesman
At this key junction in the history of the investment banking industry, Goldman Sachs needs more than an effective manager at its helm, it needs a statesman -- someone with the skills and vision to smooth the transition to the new financial order. So far, Blankfein hasn't built a convincing case that he fits that profile. Although they may lack his trader's instincts, both Jamie Dimon of JPMorgan Chase (NYSE: JPM ) and James Gorman, the new CEO of Morgan Stanley (NYSE: MS ) look more polished as diplomats (admittedly, neither one has faced the same degree of external pressure as Blankfein).
Does Goldman need a new CEO? Ultimately, that is a matter for Goldman's shareholders and its board of directors to decide. If you've got an opinion on the matter, let us know in the comments section below.
Whether it's large-cap or small-cap, investors should expect disappointing returns from U.S. stocks over the next several years. The good news is that there are alternatives for your money. Tim Hanson explains how to make more in 2010.